Rules for NRI Investment In Indian Shares

Many Non Resident Indians (i.e. NRIs) are not sure as to (i) regulations applicable to them with regard to investing in Indian shares and (ii) documentary requirements which apply to them.

In this article, I will explain the correct (and legal) way of NRI investment in shares, mutual funds and other financial instruments in India.

Non-Resident Indian (NRI) – NRI is someone who was residing outside India for at least 182 days in a financial year. [as per the Indian Income Tax Act, 1961].

Do’s & Don’t for NRI Investment

If you recently became an NRI and so far you have been transacting using your savings / current bank account linked to your trading and demat account, PLEASE STOP TRADING WITH THESE ACCOUNTS.

The moment you become an NRI (or when you become a Resident Indian upon your return to India), it is your duty to close your existing accounts and open new NRI account for – (i) trading (ii) de-mat and (iii) banking.

NRIs can ONLY invest in Indian stock market under the Portfolio Investment NRI Scheme (PINS) of the Reserve Bank of India (RBI).

NRIs can have more than one trading and demat account but can have only one bank account linked to those accounts. This bank account can be an NRE account or an NRO account.

NRIs are not allowed to trade intra-day but can trade in the F&O segment.

What is Portfolio Investment NRI Scheme?

Under PINS scheme of the RBI (defined in Schedule 3 of Foreign Exchange Management Act 2000), NRIs and Persons of Indian Origin (PIOs) can buy/sell shares and convertible debentures of Indian companies on a recognized stock exchange (BSE/NSE) in India through their account held with a designated bank branch.

Steps to Follow For Investing in Indian Share

Open a PINS account with RBI approved designated bank branch;

Open a NRE/NRO account;

Open a Demat Account with a depository participant;

Open a Trading account with a SEBI registered broker to execute trades on your behalf on the Exchange.

There are many brokerages houses which offer these facilities under one umbrella and provide integrated investment services. For example – Kotak Securities, ICICI Direct etc.

Documents Required to Open Trading Account

Document ensuring status of identity;

In case of Indian passport – Valid passport, Place of birth as India, Valid Visa – Work/Student/employment/resident permit etc.

In case of foreign passport – Valid passport and any of the following:

Note – Short term Capital Gain Tax of 15.45% on profit is applicable if stocks are sold within a year of purchase.

Note: As per SEBI regulations, maximum allowable brokerage on stock trading is 2.5% of total value of trade.

Guidelines under Portfolio Investment NRI Scheme

An NRI can purchase up to a maximum of 5% of the paid up equity share capital of the company (equity as well as preference capital);

An NRI can purchase up to a maximum of 5% of the each series of convertible debentures of the company;

There is an overall ceiling of 10% of paid-up equity share capital of the company for purchase by all NRIs put together.

However, this overall ceiling can be raised to 24 % if the company passes a special resolution to that effect in its general body meeting.

While limits of individual holdings by NRIs are monitored by the respective designated bank branch, RBI also monitors the holding limits by NRIs. Once the ceiling is breached, the stock is blocked by RBI for NRI trading. This script is re-opened for trading once the holding percentage of NRIs drops down.

Last updated: 28th December, 2015

LOOKING FOR A FINANCIAL ADVISOR? WANT TO OPEN A TRADING ACCOUNT? FILL IN YOUR DETAILS BELOW

Rajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.

Comments

Dear Rajat. Thanks for laying it out in one place. You mentioned that NRIs can have more than one trading ac. and demat ac. Can an NRI have multiple PINS accounts? I was told that if one wants to shift his trading account, he will have to close his existing PINS and demat account and transfer all his holdings to the new account.

Nre accounts are not taxed.Nro accounts are taxable.
Can i link my nre account and trade, so that i can send money from demat to NRE account.
Normally for money to be deposited in NRE account. It needs to be transfer via abroad or other NRE account.